Germany-based company agrees to pay $15 million in LeNature's fraud

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By Richard Gazarik

Thursday, Nov. 8, 2012, 10:42 a.m.

A Germany-based equipment manufacturer will pay a record $15 million fine to avoid prosecution in the financial collapse of LeNature's beverage company of Latrobe, according to U.S. Attorney David J. Hickton.

Krones Aktiengesellschaft and its American subsidiary, Krones Inc. of Franklin, Wis., signed an agreement with prosecutors that ends a criminal probe of the company's alleged role in helping former LeNature's CEO Gregory Podlucky skim $118 million by inflating the cost of bottling equipment for LeNature's Phoenix plant.

Hickton said on Thursday the penalty is the largest ever imposed in the Western District of Pennsylvania.

Hickton said Krones cooperated in the investigation that led to Podlucky pleading guilty to mail, bank and wire fraud along with money laundering and tax charges. He is serving a 20-year sentence in a federal prison. His wife, son, brother, two former company executives and another former employee are serving prison time for their roles in Podlucky's $861 million scam that led to the beverage maker's demise.

Court documents indicate Krones' involvement with Podlucky's intricate plot began when he decided to expand the company's operations to Phoenix.

The U.S. Attorney said lenders financing the equipment were given inflated costs by Podlucky, which were then confirmed by Krones officials. Those numbers were about twice the actual cost of the equipment, court records show. Eventually, Krones returned about $118 million of the overpayments to Podlucky, records indicate.

The investors later learned about the deal from an informant and filed suit against Krones and its German parent company.

When LeNature's went bankrupt in 2006, the Phoenix equipment was sold at a fire sale for $18 million, according to bankruptcy court records.

“We entered into this agreement with Krones because we are satisfied the penalty is of a magnitude adequate to deter Krones from becoming an instrument of a criminal scheme in the future, as well as to deter others from transacting business by deceitful means,” Hickton said.

Konie Brenneman, a spokeswoman for Krones Inc., said the company has cooperated fully with the U.S. Attorney's office in its investigation of LeNature's.

She said the settlement includes $110 million in payments to private parties and the bankruptcy trustee representing creditors.

“Krones denies having knowingly participated in LeNature's fraudulent activities in any way, and admits no fault or misconduct in its dealings with LeNature's,” she said. “In the course of doing business, Krones was manipulated by LeNature's and subjected to fraudulent and unethical activities.”

Legal experts say the deal struck with Krones is not unusual.

Bruce Antkowiak, a former federal prosecutor who teaches at St. Vincent College near Latrobe, said that a company can't be imprisoned, and a trial would have likely resulted in a fine anyway.

“Prosecutors primarily are looking for restitution as a result of prosecution. If a prosecutor can achieve that by an agreement and forestall a jury trial, that would benefit the government more than a trial and forestall the cost,” he said.

Richard Gazarik is a staff writer for Trib Total Media. He can be reached at 724-830-6292 or at rgazarik@tribweb.com.

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